PARTNERSHIP purely accidental or entirely due to a fortuitous cause, if the death or
personal injury arose out of and in the course of the employment. . . . .
1. BENITO LIWANAG and MARIA LIWANAG REYES vs. WORKMEN’S
COMPENSATION COMMISSION, ET AL., G.R. No. L-12164, May 22, 1959
Facts:
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag
Auto Supply, a commercial guard who while in line of duty, was skilled by
criminal hands. His widow Ciriaca Vda. de Balderama and minor children
Genara, Carlos and Leogardo, all surnamed Balderama, in due time filed a claim
for compensation with the Workmen's Compensation Commission, which was
granted in an award worded as follows:
The order of the referee under consideration was affirmed and
respondents Benito Liwanag and Maria Liwanag Reyes, were ordered:
1. To pay jointly and severally the amount of three thousand Four
Hundred Ninety Four and 40/100 (P3,494.40) Pesos to the claimants in
lump sum; and
To pay to the Workmen's Compensation Funds the sum of P4.00
(including P5.00 for this review) as fees, pursuant to Section 55 of the
Act.
Issue:
WON the responsibility of the appellants' obligation is joint, not solidary.
Ruling:
No. At first blush appellants' contention would seem to be well, for ordinarily,
the liability of the partners in a partnership is not solidary; but the law
governing the liability of partners is not applicable to the case at bar wherein a
claim for compensation by dependents of an employee who died in line of duty
is involved. And although the Workmen's Compensation Act does not contain
any provision expressly declaring solidary obligation of business partners like
the herein appellants, there are other provisions of law from which it could be
gathered that their liability must be solidary. Arts. 1711 and 1712 of the new
Civil Code provide:
ART. 1711. Owners of enterprises and other employers are obliged to pay
compensation for the death of or injuries to their laborers, workmen,
mechanics or other employees, even though the event may have been
ART. 1712. If the death or injury is due to the negligence of a fellow-
worker, the latter and the employer shall be solidarily liable for
compensation. . . . .
And section 2 of the Workmen's Compensation Act, as amended reads in part as
follows:
. . . The right to compensation as provided in this Act shall not be defeated
or impaired on the ground that the death, injury or disease was due to the
negligence of a fellow servant or employee, without prejudice to the right
of the employer to proceed against the negligence party.
The provisions of the new Civil Code above quoted taken together with those of
Section 2 of the Workmen's Compensation Act, reasonably indicate that in
compensation cases, the liability of business partners, like appellants, should be
solidary; otherwise, the right of the employee may be defeated, or at least
crippled. If the responsibility of appellants were to be merely joint and solidary,
and one of them happens to be insolvent, the amount awarded to the appellees
would only be partially satisfied, which is evidently contrary to the intent and
purposes of the Act. In the previous cases we have already held that the
Workmen's Compensation Act should be construed fairly, reasonably and
liberally in favor of and for the benefit of the employee and his dependents; that
all doubts as to the right of compensation resolved in his favor; and that it
should be interpreted to promote its purpose. Accordingly, the present
controversy should be decided in favor of the appellees.
Moreover, Art. 1207 of the new Civil Code provides:
. . . . There is solidary liability only when the obligation expressly so states,
or when the law or the nature of the obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full protection to
the employee, reason demands that the nature of the obligation of the
employers to pay compensation to the heirs of their employee who died in line
of duty, should be solidary; otherwise, the purpose of the law could not be
attained.
Wherefore, finding no error in the award appealed from, the same is hereby
affirmed.
Separate Opinion:
REYES, A., J., dissenting:
Whether the defendants herein be regarded as co-partners or as mere co-
owners, their liability for the indemnity due their deceased employee would not
be solidary but only pro rata (Arts. 485 and 1815, new Civil Code). The
Workmen's Compensation Act does not change the nature of that liability either
expressly or by intendment. To hold that it does, is to read into the Act
something that is not there. For this Court, therefore, to declare that under the
said Act the defendants herein are liable solidarily is to play the role of legislator.
The injustice of the rule sought to be established in the majority opinion may
readily be made obvious with an example. Suppose that one of two co-partners
or co-owners owns 99 percent of the business while his co-partner or co-
owners own only 1 percent. To hold that in such case the latter's liability may
run up to 100 percent although his interest is only 1 percent would not only be
illogical but also inequitable.
For the foregoing reasons, I have no choice but to dissent.
2. ELMO MUÑASQUE vs. COURT OF APPEALS, CELESTINO GALAN TROPICAL
COMMERCIAL COMPANY and RAMON PONS, G.R. No. L-39780, November
11, 1985
Facts:
Petitioner Elmo Muñasque filed a complaint for payment of sum of money and
damages against respondents Celestino Galan, Tropical Commercial, Co., Inc.
(Tropical) and Ramon Pons, alleging that the petitioner entered into a contract
with respondent Tropical through its Cebu Branch Manager Pons for
remodelling a portion of its building without exchanging or expecting any
consideration from Galan although the latter was casually named as partner in
the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical). Galan would receive some kind of compensation
in the form of some percentages or commission; that Tropical, under the terms
of the contract, agreed to give petitioner the amount of P7,000.00 soon after the
construction began and thereafter, the amount of P6,000.00 every fifteen (15)
days during the construction to make a total sum of P25,000.00.
On January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not
to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting
petitioner's indorsement on the same check persuading the latter that the same
be deposited in a joint account. On January 26, 1967, when the second check for
P6,000.00 was due, petitioner refused to indorse said cheek presented to him
by Galan but through later manipulations, respondent Pons succeeded in
changing the payee's name from Elmo Munñ asque to Galan and Associates, thus
enabling Galan to cash the same at the Cebu Branch of the Philippine
Commercial and Industrial Bank (PCIB) placing the petitioner in great financial
difficulty in his construction business and subjecting him to demands of
creditors to pay' for construction materials, the payment of which should have
been made from the P13,000.00 received by Galan.
Petitioner undertook the construction at his own expense completing it prior to
the March 16, 1967 deadline; that because of the unauthorized disbursement by
respondents Tropical and Pons of the sum of P13,000.00 to Galan, petitioner
demanded that said amount be paid to him by respondents under the terms of
the written contract between the petitioner and respondent company.
The respondents answered the complaint by denying some and admitting some
of the material averments and setting up counterclaims.
The business firms Cebu Southern Hardware Company and Blue Diamond Glass
Palace were allowed to intervene, both having legal interest in the matter in
litigation.
RTC Decision: (1) Plaintiff Munñ asque and defendant Galan to pay jointly and
severally the intervenors Cebu and Southern Hardware Company and Blue
Diamond Glass Palace; and (2) absolving the defendants Tropical Commercial
Company and Ramon Pons from any liability. No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its proprietor, Tan
Siu filed motions for reconsideration.
RTC Amended Decision: (1) Plaintiff Munñ asque and defendant Galan to pay
jointly and severally the intervenors Cebu Southern Hardware Company and
Blue Diamond Glass Palace; (2) ordering plaintiff and defendant Galan to pay
Intervenor Cebu Southern Hardware Company and Tan Siu jointly and severally
interest at 12% per annum of the sum of P6,229.34 until the amount is fully
paid; (3) ordering plaintiff and defendant Galan to pay P500.00 representing
attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company; and (4) absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability. No damages awarded whatsoever.
Court of Appeals Decision: The Court of Appeals affirmed the judgment of the
trial court with the sole modification that the liability imposed in the dispositive
part of the decision on the credit of Cebu Southern Hardware and Blue Diamond
Glass Palace was changed from "jointly and severally" (solidary) to "jointly."

Not satisfied, Mr. Munñ asque filed this petition.
Issues:
1. WON the appellate court erred in holding that a partnership existed between
petitioner and respondent Galan.
2. Assuming that there was such a partnership, WON the court erred in not
finding Galan guilty of malversing the P13,000.00 covered by the first and
second checks and therefore, accountable to the petitioner for the said amount.
3. WON the court committed grave abuse of discretion in holding that the
payment made by Tropical through its manager Pons to Galan was "good
payment".
Ruling:
1. NO. The records will show that the petitioner entered into a contract with
Tropical for the renovation of the latter's building on behalf of the partnership
of "Galan and Muñasque." There is nothing in the records to indicate that the
partner-ship organized by the two men was not a genuine one. If there was a
falling out or misunderstanding between the partners, such does not convert the
partnership into a sham organization. Likewise, when Munñ asque received the
first payment of Tropical in the amount of P7,000.00 with a check made out in
his name, he indorsed the check in favor of Galan. Respondent Tropical
therefore, had every right to presume that the petitioner and Galan were true
partners. If they were not partners as petitioner claims, then he has only himself
to blame for making the relationship appear otherwise, not only to Tropical but
to their other creditors as well. The payments made to the partnership were,
therefore, valid payments.
2. The Supreme Court did not render any ruling as regards this issue.
Petitioner maintains that the appellate court committed grave abuse of
discretion in not holding Galan liable for the amounts which he "malversed" to
the prejudice of the petitioner. He adds that although this was not one of the
issues agreed upon by the parties during the pretrial, he, nevertheless, alleged
the same in his amended complaint which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner made
allegations as to the alleged malversations of Galan, these were the same
allegations in his original complaint. The malversation by one partner was not
an issue actually raised in the amended complaint but the alleged connivance of
Pons with Galan as a means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the issues
during the pre-trial because he himself agreed to the same. Petitioner could
have asked at least for a modification of the issues if he really wanted to include
the determination of Galan's personal liability to their partnership but he chose
not to do so, as he vehemently denied the existence of the partnership.
3. NO. No error was committed by the appellate court in holding that the
payment made by Tropical to Galan was a good payment which binds both Galan
and the petitioner. Since the two were partners when the debts were incurred,
they, are also both liable to third persons who extended credit to their
partnership.
What is the kind of liability/obligation of the partners?
While it is true that under Article 1816 of the Civil Code, "All partners,
including industrial ones, shall be liable prorate with all their property and after
all the partnership assets have been exhausted, for the contracts which may be
entered into the name and for the account of the partnership, under its signature
and by a person authorized to act for the partner-ship. ...", this provision should
be construed together with Article 1824 which provides that: "All partners are
liable solidarily with the partnership for everything chargeable to the partnership
under Articles 1822 and 1823." In short, while the liability of the partners are
merely joint in transactions entered into by the partnership, a third
person who transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third person falls
under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner acting
in the ordinary course of the business of the partner-ship or with the
authority of his co-partners, loss or injury is caused to any person, not
being a partner in the partnership or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so acting
or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
 (2) Where the partnership in the course of its business receives money or
property of a third person and t he money or property so received is
misapplied by any partner while it is in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners, whether
innocent or guilty, as well as the legal entity which is the partnership, are
solidarily liable.
In the case at bar the respondent Tropical had every reason to believe that a
partnership existed between the petitioner and Galan and no fault or error can
be imputed against it for making payments to "Galan and Associates" and
delivering the same to Galan because as far as it was concerned, Galan was a
true partner with real authority to transact on behalf of the partnership with
which it was dealing. This is even more true in the cases of Cebu Southern
Hardware and Blue Diamond Glass Palace who supplied materials on credit to
the partnership. Thus, it is but fair that the consequences of any wrongful act
committed by any of the partners therein should be answered solidarily by all
the partners and the partnership as a whole
However, as between the partners Munñ asque and Galan,justice also dictates
that Munñ asque be reimbursed by Galan for the payments made by the former
representing the liability of their partnership to herein intervenors, as it was
satisfactorily established that Galan acted in bad faith in his dealings with
Munñ asque as a partner.
Dispositive Portion: The liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to be
joint and solidary. Petitioner may recover from respondent Galan any amount
that he pays, in his capacity as a partner, to the above intervenors,
3. LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) vs. JOSE S. Y.
PENG, G.R. No. L-29182, October 24, 1928
Facts:
San Miguel Brewery, Porta Pueco & Co., and Ruiz & Rementaria S. en C.
instituted insolvency proceedings against Leoncia Vda. de Chan Diaco, owner of
a grocery store on Calle Nueva, Binondo, known as the store of "La Viuda de G. G.
Chan Diaco." In their petition for the declaration of the insolvency, the firms
alleged that Leoncia was indebted to them in the sum of P26,234.47, which debt
was incurred within thirty days prior to the filing of said petition. Other
creditors have filed claims against the estate to the amount of P50,000.
Leoncia did not appear at the hearing, the court declared her insolvent and
ordered the sheriff to take possession of her property, which were some
merchandise, afterwards sold at public auction for P3,300. The Judge appointed
Ricardo Summers, the clerk of the CFI Manila, referee, authorizing him to take
further evidence in regard to the questions of fact raised by the motions of
August 5th and 19th. The referee rendered a report to the court which was
approved by Judge del Rosario. Chan Bona were ordered to show cause why
they should not return that alleged merchandise to the value of P20,000, alleged
to have been delivered by Leoncia, together with P5,000 in cash alleged to have
been received from her by the merchant Chua Ico.
The attorney for the insolvent filed her exception to the report of the referee,
which was approved, and ordered the insolvent to deliver to the assignee the
sum of P56,000, more or less, alleged to have been in her possession on April 19,
1925. The court further ordered her to surrender the books of accounts
together with the accounts receivable amounting to P40,000 and the sums
withdrawn by her from her China Banking account a few days prior to the
declaration of insolvency; and directed the assignee to file actions against the
merchants Cua Ico, Chan Keep, and Simon A. Chan Bona for the return by them
of the sum of P5,000 in cash, plus the merchandise valued at P20,000 delivered
to them by the insolvent in fraud of her creditors.
On August 4, 1926, attorney for the insolvent filed a motion asking the court to
dismiss the proceedings against her on the ground that they should have been
brought against the partnership "Lao Liong Naw & Co.," of which she was only a
member. The alleged partnership was evidenced by an agreement dated July 22,
1922, and from which it appeared that on that date Lao Liong Naw (Leoncia),
Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le, and Juan Maquitan Chan
had formed a partnership with a capital of P21,000, of which only P4,000 was
contributed by Leoncia.
Judge Del Rosario suspended for the time being the effects of the decision and
set the motion down for hearing on the 14th of August, 1926. His Honor again
appointed Summers as referee. The referee rendered a second report, in which
he found as facts that the alleged partnership between the insolvent and some of
her relatives and employees was only a fictitious organization created for the
purpose of deceiving the Bureau of Customs and enable some of the aforesaid
relatives, who were mere coolies, to come to the Philippines under the status of
merchants. He, therefore, recommended that the motion of the insolvent to
dismiss the proceedings against her be denied.
Judge Francisco Zandueta, who had been temporarily assigned to take the place
of Judge Del Rosario disapproved the report of the referee. The court affirmed
the suspension of the decision of Judge Del Rosario, and dismissed the
insolvency proceedings, and ordered the assignee to return to the sheriff all the
property of the insolvent which he has in his possession. A MR was presented by
the assignee but was denied by the court. The assignee appealed to this court
and presents the following assignments of error:
Issues:
1. WON the lower court erred in disapproving the second report of the referee.
2. WON the lower court erred in dismissing the petition for the involuntary
insolvency of the merchant Leoncia.
3. WON the lower court erred in ordering the filing of a new petition of
insolvency against the fictitious partnership Lao Liong Niew & Co. and the
delivery to the sheriff of all the property of the insolvency.
Ruling:
The evidence appearing in the record fully supports the findings of the referee
and his report should have been approved by the court below.
As to the second and third assignments of error it is to be observed that for the
sake of the argument that the debts in question were incurred by the alleged
partnership, it clearly appears from the record that said partnership has no
visible assets that the partners individually must jointly and severally respond
for its debts (Code of Commerce, art. 127). As the appellee is one of the partners
and admits that she is insolvent, we can see no reason for the dismissal of the
proceedings against her. It is further to be noted that both the partnership and
the separate partners thereof may be joined in the same action, though the
private property of the latter cannot be taken in payment of the partnership
debts until the common property of the concern is exhausted and, under this
rule, it seems clear that the alleged partnership here in question may, if
necessary, be included in the case by amendments to the insolvency petition.
We also call attention to the fact that the evidence clearly shows that the
business, alleged to have been that of the partnership, and was carried on under
the name "Leoncia Vda. de Chan Diaco" or "La Vda. de G. G. Chan Diaco," both of
which are names of the appellee, it can be safely held that a partnership may be
adjudged bankrupt in the name of an ostensible partner, when such name is the
name under which the partnership did business.
The decision appealed from is hereby reversed, the reports and
recommendations of the referee are approved, and the order for the dismissal of
the case is set aside, and the decision of Judge Simplicio Del Rosario dated July
23, 1926, will remain in full force and effect. No costs will be allowed. So
ordered.
4. EUFRACIO D. ROJAS vs. CONSTANCIO B. MAGLANA, G.R. No. 30616,
December 10, 1990
Facts:
Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast
Development Enterprises (EDE). It was a partnership with an indefinite term of
existence. Maglana shall manage the business affairs while Rojas shall be the
logging superintendant and shall manage the logging operation. They shall
share in all profits and loss equally. Due to difficulties encountered they decided
to avail of the sources of Pahamatong as industrial partners. They again
executed their Articles of Co-Partnership under EDE. The term is 30 years. After
sometime Pamahatong sold his interest to Maglana and Rojas including
equipment contributed. After withdrawal of Pamahatong, Maglana and Rojas
continued the partnership. After 3 months, Rojas entered into a management
contract with another logging enterprise. He left and abandoned the
partnership. He even withdrew his equipment from the partnership and was
transferred to CMS. He never told Maglana that he will not be able to comply
with the promised contributions and he will not work as logging
superintendent. Maglana then told Rojas that the latter share will just be 20% of
the net profits. Rojas took funds from the partnership more than his
contribution. Thus, Maglana notified Rojas that he dissolved the partnership.
Issue:
What is the nature of the partnership and legal relationship of Maglana and
Rojas after Pahamatong retired from the second partnership?
Ruling:
It was not the intention of the partners to dissolve the first partnership, upon
the constitution of the second one, which they unmistakably called “additional
agreement.” Otherwise stated even during the existence of the second
partnership, all business transactions were carried out under the duly
registered articles. No rights and obligations accrued in the name of the second
partnership except in favor of Pahamatong which was fully paid by the duly
registered partnership.
5. MARJORIE TOCAO and WILLIAM T. BELO vs. COURT OF APPEALS and
NENITA A. ANAY, G.R. No. 127405, October 4, 2000
Facts:
Respondent met the petitioner through Belo. They entered into a joint venture
for the local distribution of kitchen wares. Anay was made to receive
commissions based on her performance, as verbally agreed upon by her and
Belo, the latter acting as guarantor of Tocao. The business was named Geminisse
Enterprises under the sole proprietorship of Tocao. In 1987, Beo signed a 37%
commission to Anay for her business transactions but after 2 days, she
discovered that she was no longer the head of marketing and have been barred
from holding office.
Issue:
WON Anay was an employee or partner of the business and thus entitled for
damages.
Ruling:
The RTC and CA found that partnership existed based on the facts presented.
Where no immovable property is involved, an oral agreement will suffice to
create a partnership. Thus an unjustified dissolution by a partner can subject
him to action for damages because by the mutual agency that arises in a
partnership, the doctrine or delectus personae allows the partners to have the
power although not necessarily to dissolve the partnership.
6. MAXIMO GUIDOTE vs. ROMANA BORJA, as administratrix of the estate of
Narciso Santos, G.R. No. L-28920, October 24, 1928
Facts:
Maximo Guidote and Narciso Santos formed in 1918 a partnership business
under the name of “Taller Sinukuan,” in which Santos was the capitalist partner
and Guidote was the industrial partner. Santos died in 1920. Guidote failed to
liquidate the affairs of the partnership and to render an account thereof to
Borja, the administratrix of Santos’ estate.
Guidote brought an action against Borja to recover a sum of money [9k~], a part
of which was alleged to be the net profits from the business due Guidote, and
the rest of the sum consisting of advances allegedly made by Guidote. Borja
admitted the partnership’s existence and prayed that Guidote be ordered to
render an accounting and to pay the estate 25k as net profits, credits, and
property pertaining to Santos.
Guidote called several witnesses and introduced a so-called accounting and a
mass of documentary evidence, which was so hopelessly and inextricably
confused that the court could not consider it of much probative value. The court
dismissed Guidote’s complaint and absolved Borja. Guidote was ordered to
render a full and complete accounting, verified by vouchers, of the partnership
business.
Guidote rendered an account prepared by one Tomas Alfonso, a public
accountant. Numerous objections were presented by Borja. The court
disapproved the account and ordered that Borja submit an accounting from the
date of the commencement of the partnership up to the time the business was
closed.
Borja presented an account and liquidation prepared by a public accountant,
Santiago A. Lindaya, showing a balance of P29k~ in Borja’s [Santos’ estate]
favor. At the hearing, Borja introduced the public accountant Jose Turiano
Santiago to testify as to the results of an audit made by him of the partnership
accounts. Santiago testified that he had prepared a separate accounting or
liquidation similar in results to that prepared by Lindaya, but with a few
differences in the sums total. [Computation: Santos is a creditor of the Taller
Sinukuan in the sum of P26k. Guidote is a debtor to the Taller Sinukuan in the
sum of P20k.]
In order to contradict the conclusions of the two public accountants, Guidote
presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as witnesses. The
trial court judge said that the testimonies of these witnesses are unreliable.
Tomas Alfonso is the same public accountant who filed the liquidation Exhibit O
on behalf of Guidote, in relation to the partnership business, which liquidation
was disapproved by this court in a decision. The judge did not believe Alfonso’s
proposition that Guidote, a mere industrial partner, notwithstanding his having
received 21k on the various jobs and contracts of the business had actually
expended and paid out 63k, of 44k in excess of the gross receipts of the
business. It materially contradicts Guidote’s allegations to the effect that the
advances that he [Guidote] made amounted only to 2k. Pio Gaudier is the same
bookkeeper who prepared three entirely separate and distinct liquidations for
the same partnership business, and the court found that the testimony given by
him at the last hearing is confusing, contradictory and unreliable.
Other witnesses were given scant consideration—Chua Chak can neither read
nor write English, Spanish, or Tagalog; Claro Reyes was forced to admit that a
certain exhibit was not the original.
The court gave credence to the conclusions reached by the public accountants
presented by Borja. Guidote was ordered to pay P26k to Borja, with legal
interest, plus costs.
Issue:
WON the trial court is correct in ordering Guidote to pay P26k to Borja. YES
Ruling:
There may be some merit in Guidote’s contention that the dismissal of his
complaint was premature. The better practice would been to let the complaint
stand until the result of the liquidation of the partnership affairs was known.
But under the circumstances, no harm was done by the dismissal of Guidote’s
complaint.
Guidote’s argument: Since Santos, up to the time of his death, generally took
care of the partnership’s payments and collections, his legal representatives
were under the obligation to render accounts of the operations,
notwithstanding the fact that Guidote was in charge of the business subsequent
to the death of Santos.
GUIDOTE’S ARGUMENT IS UNAVAILING.
Wahl v. Donaldson Sim & Co.: The death of one of the partners dissolves the
partnership, but that the liquidation of its affairs is by law entrusted, not to the
executors of the deceased partner, but to the surviving partners or the
liquidators appointed by them.
The rule for the conduct of a surviving partner
In equity, surviving partners are treated as trustees of the representatives of the
deceased partner, with regard to the interest of the deceased partner in the firm.
As a consequence of this trusteeship, surviving partners are held in their
dealings with the firm assets and the representatives of the deceased to that
nicety of dealing and that strictness of accountability required of and incidental
to the position of one occupying a confidential relation. It is the duty of
surviving partners to render an account of the performance of their trust to the
personal representatives of the deceased partner, and to pay over to them the
share of such deceased member in the surplus of firm property, whether it
consists of real or personal assets. Guidote failed to observe this rule, and he is
not in position to complain if his testimony and that of his witnesses is
discredited.
7. MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L.
ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC.
vs. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband
CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE
PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G.
SALDAJENO and her husband CECILIO SALDAJENO, G.R. No. L-27343,
February 28, 1979
Facts:
Isabela Sawmill was formed by partners Saldajeno, Leon and Timoteo. Saldajeno
withdrew from the partnership and after dissolution, Leon Garibay and Timoteo
Tubungbanua continued the business still under the name Isabela Sawmill. The
partnership is indebted to various creditors and that Sheriff sold the assets of
Isabela Sawmill to Saldajeno and was subsequently sold to a separate company.
Issue:
WON Isabela Sawmill ceased to be a partnership and that creditors could no
longer demand payment.
Ruling:
On dissolution, the partnership is not terminated but continues until the
winding up of the business. It does not appear that the withdrawal of Saldajeno
from the partnership was published in the newspapers. The appellee and the
public had a right to expect that whatever credit they extended to Leon Garibay
and Timoteo Tubungbanua doing business in the name of Isabela Sawmill could
be enforced against the properties of said partnership. The judicial foreclosure
of the chattel mortgage executed in favor of S did not relieve her from liability to
the creditors of the partnership.
It may be presumed that Saldajeno acted in good faith, the appellees also acted
in good faith in extending credit to the partnership. Where one of the 2 innocent
persons must suffer, that person who gave occasion for the damages to be
caused must bear the consequences.
8. GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L. MISA, G.R. No. 109248, July 3, 1995
Facts:
Ortega, then a senior partner in the law firm Bito, Misa, and Lozada withdrew in
said firm. He filed with SEC a petition for dissolution and liquidation of
partnership.
SEC en banc ruled that withdrawal of Misa from the firm had dissolved the
partnership.
Reason: since it is partnership at will, the law firm could be dissolved by any
partner at anytime, such as by withdrawal therefrom, regardless of good faith or
bad faith, since no partner can be forced to continue in the partnership against
his will.
Issues:
1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will;
2. WON the withdrawal of Misa dissolved the partnership regardless of his good
or bad faith;
Ruling:
1. Yes. The partnership agreement of the firm provides that ”[t]he partnership
shall continue so long as mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by the surviving partners.”
2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of
the partnership at will (e.g. by way of withdrawal of a partner). He must,
however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for damages.
9. LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE
vs. DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ, G.R. No. 144214, July 14, 2003
Facts:
Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with
a capital of P750,000 for the operation of a restaurant and catering business
under the name “Aquarius Food House and Catering Services.” Villareal was
appointed general manager and Carmelito Jose, operations manager.
Respondent Donaldo Ramirez joined as a partner on September 5, 1984 with a
capital contribution of P250,000 which was paid by his parents, Respondents
Cesar and Carmelita Ramirez. Jesus Jose withdrew from the partnership and his
capital contribution of P250,000 was refunded to him in cash by agreement of
the partners.
In the same month, without prior knowledge of respondents, petitioners closed
down the restaurant, allegedly because of increased rental. The restaurant
furniture and equipment were deposited in the respondents’ house for storage.
On March 1, 1987, respondent spouses wrote petitioners, saying that they were
no longer interested in continuing their partnership or in reopening the
restaurant, and that they were accepting the latter’s offer to return their capital
contribution. Respondent wrote another letter informing petitioners of the
deterioration of the restaurant furniture and equipment stored in their house.
She also reiterated the request for the return of their one-third share in the
equity of the partnership. The repeated oral and written requests were,
however, left unheeded.
Respondents filed before the RTC for the collection of a sum of money from
petitioners. Petitioners contended that respondents had expressed a desire to
withdraw from the partnership and had called for its dissolution under Articles
1830 and 1831; that respondents had been paid, upon the turnover to them of
furniture and equipment worth over P400,000; and that the latter had no right
to demand a return of their equity because their share, together with the rest of
the capital of the partnership, had been spent as a result of irreversible business
losses.
In their Reply, respondents alleged that had not received any regular report or
accounting from the latter, who had solely managed the business. Respondents
also alleged that they expected the equipment and the furniture stored in their
house to be removed by petitioners as soon as the latter found a better location
for the restaurant. RTC 17 ruled that the parties had voluntarily entered into a
partnership, which could be dissolved at any time. Petitioners clearly intended
to dissolve it when they stopped operating the restaurant. Hence, the trial court
rendered a judgment in favor of respondents and ordering the petitioners to pay
jointly and severally.
Issues:
1. WON the Honorable Court of Appeals' decision ordering the distribution of
the capital contribution, instead of the net capital after the dissolution and
liquidation of a partnership, thereby treating the capital contribution like a loan,
is in accordance with law and jurisprudence.
2. WON the Honorable Court of Appeals' decision ordering the petitioners to
jointly and severally pay and reimburse the amount of [P]253,114.00 is
supported by the evidence on record.
Ruling:
1. First Issue: Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed
existed, and that it was dissolved on March 1, 1987. They found that the
dissolution took place when respondents informed petitioners of the intention
to discontinue it because of the former's dissatisfaction with, and loss of trust in,
the latter's management of the partnership affairs. These findings were amply
supported by the evidence on record. Respondents consequently demanded
from petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the return
of their equity share. Except as managers of the partnership, petitioners did not
personally hold its equity or assets. "The partnership has a juridical personality
separate and distinct from that of each of the partners." Since the capital was
contributed to the partnership, not to petitioners, it is the partnership that must
refund the equity of the retiring partners.
2. Second Issue: What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the
shares of the partners, the amount to be refunded is necessarily limited to its
total resources. In other words, it can only pay out what it has in its coffers,
which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. After all the
creditors have been paid, whatever is left of the partnership assets becomes
available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to
respondents' one-third share in the partnership cannot be determined until all
the partnership assets will have been liquidated — in other words, sold and
converted to cash — and all partnership creditors, if any, paid. The CA's
computation of the amount to be refunded to respondents as their share was
thus erroneous.
First, it seems that the appellate court was under the misapprehension that the
total capital contribution was equivalent to the gross assets to be distributed to
the partners at the time of the dissolution of the partnership. We cannot sustain
the underlying idea that the capital contribution at the beginning of the
partnership remains intact, unimpaired and available for distribution or return
to the partners. Such idea is speculative, conjectural and totally without factual
or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased
by profits earned or decreased by losses sustained. It does not remain static and
unaffected by the changing fortunes of the business. In the present case, the
financial statements presented before the trial court showed that the business
had made meager profits. However, notable therefrom is the omission of any
provision for the depreciation of the furniture and the equipment. The
amortization of the goodwill (initially valued at P500,000) is not reflected either.
Properly taking these non-cash items into account will show that the
partnership was actually sustaining substantial losses, which consequently
decreased the capital of the partnership. Both the trial and the appellate courts
in fact recognized the decrease of the partnership assets to almost nil, but the
latter failed to recognize the consequent corresponding decrease of the capital.
Second, the CA's finding that the partnership had an outstanding obligation in
the amount of P240,658 was not supported by evidence. We sustain the
contrary finding of the RTC, which had rejected the contention that the
obligation belonged to the partnership for the following reason:
"x x x [E]vidence on record failed to show the exact loan owed by the
partnership to its creditors. The balance sheet (Exh. '4') does not reveal
the total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding
obligation of P240,055.00 which the partnership owes to different
creditors, while the Certification issued by Mercator Finance (Exh. '8')
shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal,
the former being the nominal party defendant in the instant case, who
obtained a loan of P355,000.00 on Oct. 1983, when the original
partnership was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000, which was the
amount paid by the partnership to Jesus Jose when he withdrew from the
partnership.
Because of the above-mentioned transactions, the partnership capital was
actually reduced. When petitioners and respondents ventured into business
together, they should have prepared for the fact that their investment would
either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had
invested could no longer be returned to them, because one third of the
partnership properties at the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties from the
effects of unwise, foolish or disastrous contracts they have entered into with all
the required formalities and with full awareness of what they were doing.
Courts have no power to relieve them from obligations they have voluntarily
assumed, simply because their contracts turn out to be disastrous deals or
unwise investments.
Petitioners further argue that respondents acted negligently by permitting the
partnership assets in their custody to deteriorate to the point of being almost
worthless. Supposedly, the latter should have liquidated these sole tangible
assets of the partnership and considered the proceeds as payment of their net
capital. Hence, petitioners argue that the turnover of the remaining partnership
assets to respondents was precisely the manner of liquidating the partnership
and fully settling the latter's share in the partnership.
We disagree. The delivery of the store furniture and equipment to private
respondents was for the purpose of storage. They were unaware that the
restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their capital
investment.
10. BENJAMIN YU vs. NATIONAL LABOR RELATIONS COMMISSION and JADE
MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D.
BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, G.R. No. 97212,
June 30, 1993
Facts:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the
marble quarrying and export business operated by a registered partnership
with the firm name of "Jade Mountain Products Company Limited" ("Jade
Mountain").
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March
1985, as Assistant General Manager with a monthly salary of P4,000.00.
According to petitioner Yu, however, he actually received only half of his
stipulated monthly salary, since he had accepted the promise of the partners
that the balance would be paid when the firm shall have secured additional
operating funds from abroad.
Without the knowledge of Benjamin Yu, the general partners Lea Bendal and
Rhodora Bendal sold and transferred their interests in the partnership to
private respondent Willy Co and to one Emmanuel Zapanta.
The actual operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save
petitioner Benjamin Yu as it turned out.
Petitioner was in fact not allowed to work anymore in the Jade Mountain
business enterprise. His unpaid salaries remained unpaid.
Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid
salaries. The partnership and Willy Co denied petitioner's charges, contending
in the main that Benjamin Yu was never hired as an employee by the present or
new partnership.
Issues:
1. WON the partnership which had hired petitioner Yu as Assistant General
Manager had been extinguished and replaced by a new partnerships composed
of Willy Co and Emmanuel Zapanta; and
2. If indeed a new partnership had come into existence, WON petitioner Yu
could nonetheless assert his rights under his employment contract as against
the new partnership.
Ruling:
The legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired petitioner in 1984 and the
emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The set of circumstances obtaining in the case at bar, is established in Article
1840 of the Civil Code. Under Article 1840 of the Civil Code, creditors of the old
Jade Mountain are also creditors of the new Jade Mountain which continued the
business of the old one without liquidation of the partnership affairs. Indeed, a
creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his
claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired
or previous partner insofar as such retired partner's interest in the dissolved
partnership is concerned. Benjamin Yu is entitled to enforce his claim for unpaid
salaries, as well as other claims relating to his employment with the previous
partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was
entitled to appoint and hire a new general or assistant general manager to run
the affairs of the business enterprise take over. An assistant general manager
belongs to the most senior ranks of management and a new partnership is
entitled to appoint a top manager of its own choice and confidence. The non-
retention of Benjamin Yu as Assistant General Manager did not therefore
constitute unlawful termination, or termination without just or authorized
cause. We think that the precise authorized cause for termination in the case at
bar was redundancy.
11. PHILIPPINE AIR LINES, INC. vs. ANTONIO BALANGUIT, ET AL., (PUBLIC
UTILITIES EMPLOYEES ASSOCIATION [FEATI CHAPTER] and THE COURT OF
INDUSTRIAL RELATIONS, G.R. No. L-8715, June 30, 1956
Facts:
PAL purchased and acquired a majority of the shares of the Far Eastern Air
Transport, Inc. (FEATI). Those two airlines were, previous to the said purchases,
then competing in various air routes through the Philippines, with the result
that both companies were losing and it became necessary to maintain only one
airline. The purchase gave rise to the problem of what to do with the FEATI
employees. After some negotiations, the parties finally reached an agreement,
whereby the PAL agreed to absorb some 70 per cent of the FEATI employees,
and the said employees agreed to work for PAL in accordance with the
provisions of the Collective Bargaining Agreement entered into between the
previous Management of FEATI and the representatives of the Public Utilities
Employees Association FEATI Chapter until such time as they come to a definite
understanding.
The Collective Bargaining Agreement with the FEATI referred to in the
employment agreement of the Public Utilities Employees Association with the
PAL was their Industrial Agreement, which granted the said employees certain
privileges, among which, the employees will be entitled to twelve (12) days
vacation leave and twelve (12) days sick leave with pay every year, which may
be cumulative.
PAL reached a ‘definite understanding’ with the Public Utilities Employees
Association whereby they entered into an agreement cancelling the previous
agreements and declaring them ‘void and of no further force and effect. It also
provided for the laying off of all the FEATI employees and the payment to them
of one and a half month’s separation pay.
Almost six years from the time they were laid off, the Public Utilities Employees
Association filed a petition with the CIR praying that the PAL be ordered to pay
them the twelve (12) days vacation leave and twelve (12) days sick leave with
pay, which had already accrued at the time they were laid off.
The PAL, in its Answer to the Employees’ petition, denied liability, alleging that it
was not a party to the Agreement.
The CIR, issued an Order requiring the PAL to pay the said employees the money
value of whatever vacation and sick leave might have accrued to the said
employees, which is roughly about P100,000.00.
Issue:
WON the PAL is legally liable for the payment of this amount.
Ruling:
The final agreement, between the PAL and FEATI on one side and the Employees
on the other, failed to make any mention whatsoever about the money
equivalent of this vacation and sick leave, whether it was payable or not and if
payable, by whom. The employees claim and also the CIR, that when the PAL
bought out the FEATI the former assumed all the rights and obligations of the
latter. This is too sweeping a statement.
In some cases, when one company buys out another and continues the business
of the latter company, the buyer may be said to assume the obligations of the
company bought out when said obligations are not of considerable amount or
value, specially when incurred in the ordinary course of trade, and when the
business of the latter company is continued. However, when said obligation is of
extraordinary value, as in this case, amounting to about P100,000, and the
FEATI was bought out not to continue its business but to stop its operation in
order to eliminate competition, as shown by the fact that all the employees of
the FEATI were laid-off, we cannot say that the vendee assumed all the
obligations of the rival airline.
What the employees should have done at the time of the negotiation,
preparatory to the execution of the agreement, was to raise the question as to
who would pay them the equivalent of the vacation and sick leave already
earned by them under the FEATI. Had they insisted on its payment, the FEATI
could perhaps have been made to pay unless, of course, the PAL agreed to
assume the obligation. When they (employees) failed to raise that question or
have it embodied in the agreement, said failure may be regarded as a waiver of
their right. And when they received a separation pay equivalent to one and one
half months and then kept quiet about their vacation and sick leave for a period
of more than five years, there is every reason to believe that there was actually
such renunciation and waiver.
This separation pay was not only for one month but it was for one month and a
half, exceeding the “mesada” provided for in the Code of Commerce (still in force
in 1947) by half a month. It is highly possible that the extra half month pay was
to take care of the vacation and sick leave, especially when we consider the fact
that at the time of separation, the employees had, for purposes of earning the
leave, not yet completed one year service.
Even assuming for a moment that the employees were entitled to the payment
of said leave, they were guilty of laches. It would be unfair now to demand this
payment from the PAL after more than five years when the papers and the
records of the service of said employees may no longer exist; when the FEATI
has long ceased operations and has long ceased to exist and when its officials
who were in a position to determine which employees because of their faithful,
efficient and continuous service were entitled to leave and for how many days,
may no longer be available.
“The purpose of vacation is to afford to a laborer a chance to get a much-needed
rest to replenish his worn out energies and acquire a new vitality to enable him
to efficiently perform his duties, and not merely to give him additional salary or
bounty. This privilege must be demanded in its opportune time and if he allows
the years to go by in silence, he waives it. It becomes a mere concession or act of
grace of the employer.”
The petition for certiorari is granted, and the order of the CIR and the resolution
of the CIR en banc are set aside, and the complaint of the employees
(Association) against the PAL is hereby dismissed, with costs.
12. ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO
OYO vs. HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu
and TAN PUT, G.R. No. L-40098, August 29, 1975
Doctrine:
Since Po Chuan was in control of the affairs of the partnership, the more logical
inference is that if defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the knowledge and consent
of Po Chuan, for which reason no accounting could be demanded from them
therefor, considering that Article 1807 of the Civil Code refers only to what is
taken by a partner without the consent of the other partner or partners.
Even assuming there has not yet been any liquidation of the partnership,
contrary to the allegation of the defendants, then Glory Commercial Co. would
have the status of a partnership in liquidation and the only right plaintiff could
have would be to what might result after such liquidation to belong to the
deceased partner, and before this is finished, it is impossible to determine, what
rights or interests, if any, the deceased had. In other words, no specific amounts
or properties may be adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first terminated.
Facts:
Private respondent Tan Put alleged that she is the widow of Tee Hoon Lim Po
Chuan, who was a partner and practically the owner who has controlling
interest of Glory Commercial Company and a Chinese Citizen until his death.
Defendant Antonio Lim Tanhu and Alfonso Leonardo Ng Sua were partners of Po
Chuan. Tan Put filed complaint against spouses-petitoner Lim Tanhu and Dy
Ochay including their son Tech Chuan and the other spouses-petitoner Ng Sua
and Co Oyo including also their son Eng Chong Leonardo, that through fraud and
machination took actual and active management of the partnership and that she
alleged entitlement to share not only in the capital and profits of the partnership
but also in the other assets, both real and personal, acquired by the partnership
with funds of the latter during its lifetime." (Basically, her allegations were that
she actually gave some of her money to Po Chuan to help launch the partnership
business; that the assets of the business were never liquidated after her
common-law-husband’s death; that the partners used the partnership funds to
acquire several properties and to also launch the new business of Glory
Commercial Company, Inc. [as opposed to the older one which was Glory
Commercial Company Partnership]; that she was entitled to accounting and
share in profits of the partnership as wife of Po Chuan; that she was fraudulently
made to sign a quitclaim for 25,000 pesos which she said she did not actually
receive.)
According to the petitioners, Ang Siok Tin is the legitimate wife, still living, and
with whom Tee Hoon had four legitimate children, a twin born in 1942, and two
others born in 1949 and 1965, all presently residing in Hong Kong. Tee Hoon
died in 1966 and as a result of which the partnership was dissolved and what
corresponded to him were all given to his legitimate wife and children.
Tan Put prior of her alleged marriage with Tee Hoon on 1949, was engaged in
the drugstore business; that not long after her marriage, upon the suggestion of
the latter sold her drugstore for P125,000.00 which amount she gave to her
husband as investment in Glory Commercial Co. sometime in 1950; that after
the investment of the above-stated amount in the partnership its business
flourished and it embarked in the import business and also engaged in the
wholesale and retail trade of cement and GI sheets and under huge profits.
Defendants interpose that Tan Put knew and was aware that she was merely the
common-law wife of Tee Hoon. Tan Put and Tee Hoon were childless but the
former had a foster child, Antonio Nunez. Defendants also said that the
defendant knew she was not entitled to the profits of the partnership but out of
the goodness of their hearts, they gave her 25,000 as evidenced by the quitclaim
she signed.
Issue:
WON Tan Put, as she alleged being married with Tee Hoon, can claim from the
company of the latter’s share.
Ruling:
No. Under Article 55 of the Civil Code, “the declaration of the contracting parties
that they take each other as husband and wife "shall be set forth in an
instrument" signed by the parties as well as by their witnesses and the person
solemnizing the marriage. Accordingly, the primary evidence of a marriage must
be an authentic copy of the marriage contract”. While a marriage may also be
proved by other competent evidence, the absence of the contract must first be
satisfactorily explained. Surely, the certification of the person who allegedly
solemnized a marriage is not admissible evidence of such marriage unless proof
of loss of the contract or of any other satisfactory reason for its non-production
is first presented to the court. In the case at bar, the purported certification
issued by a Mons. Jose M. Recoleto, Bishop, Philippine Independent Church,
Cebu City, is not, therefore, competent evidence, there being absolutely no
showing as to unavailability of the marriage contract and, indeed, as to the
authenticity of the signature of said certifier, the jurat allegedly signed by a
second assistant provincial fiscal not being authorized by law, since it is not part
of the functions of his office. Besides, inasmuch as the bishop did not testify, the
same is hearsay.
An agreement with Tee Hoon was shown and signed by Tan Put that she
received P40,000 for her subsistence when they terminated their relationship of
common-law marriage and promised not to interfere with each other’s affairs
since they are incompatible and not in the position to keep living together
permanently. Hence, this document not only proves that her relation was that of
a common-law wife but had also settled property interests in the payment of
P40,000.
We find no alternative but to hold that plaintiff Tan Put's allegation that she is
the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and
that, on the contrary, the evidence on record convincingly shows that her
relation with said deceased was that of a common-law wife and furthermore,
that all her claims against the company and its surviving partners as well as
those against the estate of the deceased have already been settled and paid.
If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of
Po Chuan is not only unconvincing but has been actually overcome by the more
competent and weighty evidence in favor of the defendants, her attempt to
substantiate her main cause of action that defendants Lim Tanhu and Ng Sua
have defrauded the partnership Glory Commercial Co. and converted its
properties to themselves is even more dismal. From the very evidence
summarized by His Honor in the decision in question, it is clear that not an iota
of reliable proof exists of such alleged misdeeds.
If Po Chuan was in control of the affairs and the running of the partnership, how
could the defendants have defrauded him of such huge amounts as plaintiff had
made his Honor believe? Upon the other hand, since Po Chuan was in control of
the affairs of the partnership, the more logical inference is that if defendants had
obtained any portion of the funds of the partnership for themselves, it must
have been with the knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor, considering that Article
1807 of the Civil Code refers only to what is taken by a partner without the
consent of the other partner or partners. Incidentally again, this theory about Po
Chuan having been actively managing the partnership up to his death is a
substantial deviation from the allegation in the amended complaint to the effect
that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan
and Eng Chong Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Co., defendants managed to use the funds of the
partnership to purchase lands and buildings etc. (Par. 4, p. 2 of amended
complaint, Annex B of petition) and should not have been permitted to be
proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and
land titles listed in the decision, most if not all of the properties supposed to
have been acquired by the defendants Lim Tanhu and Ng Sua with funds of the
partnership appear to have been transferred to their names only in 1969 or
later, that is, long after the partnership had been automatically dissolved as a
result of the death of Po Chuan. Accordingly, defendants have no obligation to
account to anyone for such acquisitions in the absence of clear proof that they
had violated the trust of Po Chuan during the existence of the partnership.
Besides, assuming there has not yet been any liquidation of the partnership,
contrary to the allegation of the defendants, then Glory Commercial Co. would
have the status of a partnership in liquidation and the only right plaintiff could
have would be to what might result after such liquidation to belong to the
deceased partner, and before this is finished, it is impossible to determine, what
rights or interests, if any, the deceased had. In other words, no specific amounts
or properties may be adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first terminated.
Disposition:
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held
in respondent court in its Civil Case No. 12328 subsequent to the order of
dismissal of October 21, 1974 are hereby annulled and set aside, particularly the
ex-parte proceedings against petitioners and the decision on December 20,
1974. Respondent court is hereby ordered to enter an order extending the
effects of its order of dismissal of the action dated October 21, 1974 to herein
petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo.
And respondent court is hereby permanently enjoined from taking any further
action in said civil case gave and except as herein indicated. Costs against private
respondent.
13. ANTONIO C. GOQUIOLAY, ET AL. vs. WASHINGTON Z. SYCIP, ET AL., G.R.
No. L-11840, December 10, 1963
Facts:
Tan Sin An and Goquiolay entered into a general commercial partnership under
the partnership name “Tan Sin An and Antonio Goquiolay” for the purpose of
dealing in real estate. The agreement lodged upon Tan Sin An the sole
management of the partnership affairs. The lifetime of the partnership was fixed
at ten years and the Articles of Co-partnership stipulated that in the event of
death of any of the partners before the expiration of the term, the partnership
will not be dissolved but will be continued by the heirs or assigns of the
deceased partner. But the partnership could be dissolved upon mutual
agreement in writing of the partners. Goquiolay executed a GPA in favor of Tan
Sin An.
The plaintiff partnership purchased 3 parcels of land which was mortgaged to
“La Urbana” as payment of P25,000. Another 46 parcels of land were purchased
by Tan Sin An in his individual capacity which he assumed payment of a
mortgage debt for P35K. A downpayment and the amortization were advanced
by Yutivo and Co. The two obligations were consolidated in an instrument
executed by the partnership and Tan Sin An, whereby the entire 49 lots were
mortgaged in favor of “Banco Hipotecario”.
Tan Sin An died leaving his widow, Kong Chai Pin and four minor children. The
widow subsequently became the administratrix of the estate. Repeated
demands were made by Banco Hipotecario on the partnership and on Tan Sin
An.
Defendant Sing Yee, upon request of defendant Yutivo Sons, paid the remaining
balance of the mortgage debt, the mortgage was cancelled. Yutivo Sons and Sing
Yee filed their claim in the intestate proceedings of Tan Sin An for advances,
interest and taxes paid in amortizing and discharging their obligations to “La
Urbana” and “Banco Hipotecario.” Kong Chai Pin filed a petition with the probate
court for authority to sell all the 49 parcels of land. She then sold it to Sycip and
Lee in consideration of P37K and of the vendees assuming payment of the
claims filed by Yutivo Sons and Sing Yee. Later, Sycip and Lee executed in favor of
Insular Development a deed of transfer covering the 49 parcels of land.
When Goquiolay learned about the sale to Sycip and Lee, he filed a petition in
the intestate proceedings to set aside the order of the probate court approving
the sale in so far as his interest over the parcels of land sold was concerned.
Probate court annulled the sale executed by the administratrix with respect to
the 60% interest of Goquiolay over the properties. Administratrix appealed.The
decision of probate court was set aside for failure to include the indispensable
parties.
New pleadings were filed. The second amended complaint prays for the
annulment of the sale in favor of Sycip and Lee and their subsequent conveyance
to Insular Development. The complaint was dismissed by the lower court hence
this appeal.
Issues:
1. WON a widow or substitute become also a general partner or only a limited
partner.  Answer: General Partner.
2. WON the lower court err in holding that the widow succeeded her husband
Tan Sin An in the sole management of the partnership upon Tan’s death.
 Answer: No error.
3. WON the consent of the other partners was necessary to perfect the sale of
the partnership properties to Sycip and Lee.  Answer: No.
Ruling:

Kong Chai Pin became a mere general partner. By seeking authority to manage
partnership property, Tan Sin An’s widow showed that she desired to be
considered a general partner.
By authorizing the widow to manage partnership property (which a limited
partner could not be authorized to do), Goquiolay recognized her as such
partner, and is now in estoppel to deny her position as a general partner, with
authority to administer and alienate partnership property.
The articles did not provide that the heirs of the deceased would be merely
limited partners; on the contrary, they expressly stipulated that in case of death
of either partner, “the co partnership will have to be continued” with the heirs
or assignees. It certainly could not be continued if it were to be converted from a
general partnership into a limited partnership since the difference between the
two kinds of associations is fundamental, and specially because the conversion
into a limited association would leave the heirs of the deceased partner without
a share in the management. Hence, the contractual stipulation actually
contemplated that the heirs would become general partners rather than limited
ones.
Separate Opinion: Justice Angelo Bautista
The court affirmed the decision but on different grounds, among which are:
(1) there is no sufficient factual basis to conclude that Kong Chai Pin executed
acts of management to give her the character of general manager of the
partnership, or to serve as basis for estoppel that may benefit the purchasers of
the partnership properties;
(2) the alleged acts of management, even if proven, could not give Kong Chai Pin
the character of general manager for the same is contrary to law and well-
known authorities;
(3) even if Kong Chai Pin acted as general manager she has no authority to sell
the partnership properties as to make it legal and valid; and
(4)Kong Chai Pin had no necessity to sell the properties to pay the obligation of
the partnership and if she did so it was merely to favor the purchasers who were
close relatives to the prejudice of Goquiolay.
The sale of the partnership properties by Kong Chai Pin cannot be upheld on the
ground of estoppel, first, because the alleged acts of management have not been
clearly proven. Moreover, mere acceptance of the inheritance does not make the
heir of a general partner a general partner himself. He emphasized that heir
must declare that he is entering the partnership as a general partner unless the
deceased partner has made it an express condition in his will that the heir
accepts the condition of entering the partnership as a prerequisite of
inheritance, in which case acceptance of the inheritance is enough. But here Tan
Sin An died intestate.
Kong Chai Pin cannot be deemed to have declared her intention to become a
general partner by exercising acts of management because as a general rule the
heirs of a deceased partner succeed as limited partners only by operation of law,
it is obvious that the heir, upon entering the partnership, must make a
declaration of his character, otherwise he should be deemed as having
succeeded as limited partner by the mere acceptance of the inheritance.
And here Kong Chai Pin did not make such declaration. Being then a limited
partner upon the death of Tan Sin An by operation of law, the peremptory
prohibition contained in Article 148 of the Code of Commerce became binding
upon her and as a result she could not change her status by violating its
provisions not only under the general principle that prohibited acts cannot
produce any legal effect, but also because under the provisions of Article 147 of
the same Code she was precluded from acquiring more rights than those
pertaining to her as a limited partner.
The alleged acts of management, therefore, did not give Kong Chai Pin the
character of general manager to authorize her to bind the partnership. Kong
Chai Pin could not sell the partnership properties without authority from the
other partners. The relationship between a managing partner and the
partnership is substantially the same as that of the agent and his principal, the
extent of the power of Kong Chai Pin must, therefore, be determined under the
general principles governing agency. And, on this point, the law says that an
agency created in general terms includes only acts of administration, but with
regard to the power to compromise, sell, mortgage, and other acts of strict
ownership, an express power of attorney is required.
Here Kong Chai Pin did not have such power when she sold the properties of the
partnership. Since Kong Chai Pin sold the partnership properties not in line with
the business of the partnership but to pay its obligation without first obtaining
the consent of the other partners the sale is invalid being in excess of her
authority. Upon the strength of the foregoing considerations, the court granted
the motion for reconsideration.
14. TECK SEING AND CO., LTD., SANTIAGO JO CHUNG, ET AL., partners vs.
PACIFIC COMMERCIAL COMPANY, ET AL., G.R. No. 19892, September 6,
1923

Facts:
Following the presentation of an application to be adjudged an insolvent by the
"Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific
Commercial Company, Pinñ ol &Company, Riu Hermanos, and W. H. Anderson &
Company, filed a motion in which the Court was prayed to enter an order: "(A)
Declaring the individual partners as described in paragraph 5parties to this
proceeding; (B) to require each of said partners to file an inventory of his
property in the manner required by section 51 of Act No. 1956; and (C) that
each of said partners be adjudicated insolvent debtors in this proceeding."
The trial judge first granted the motion, but, subsequently, on opposition being
renewed, denied it. It is from this last order that an appeal was taken in
accordance with section 82 of the Insolvency Law.
Issue:
WON the partnership contract created a limited partnership.
Ruling:
No. The contract created was not a limited partnership but a general
partnership even if “Ltd.” was used in the firm’s name to avoid liability for
possible losses.
The general rule is that those who seek to avail themselves of the protection of
laws permitting the creation of limited partnerships must show a substantially
full compliance with such laws. A limited partnership that has NOT complied
with the law of its creation is not considered a limited partnership at all, but a
GENERAL partnership in which all the members are liable.
To establish a limited partnership there must be, at least, one general partner
and the name of the least one of the general partners must appear in the firm
name. (Code of Commerce, arts.122 [2], 146, 148.) But NEITHER of these
requirements has been fulfilled.
Article 125 of the Code of Commerce provides that the articles of general co-
partnership must state the names, surnames, and domiciles of the partners; the
firm name; the names, and surnames of the partners to whom the management
of the firm and the use of its signature is instructed; the capital; the duration of
the co-partnership; and the amounts which, in a proper case, are to be given to
each managing partner annually for his private expenses, while the succeeding
article of the Code provides that the general co-partnership must transact
business under the name of all its members, of several of them, or of one only.
Turning to the document before us, it will be noted that all of the requirements
of the Code have been met, with the sole EXCEPTION of that relating to the
composition of the firm name.
What is said in Article 126 of the Code of Commerce relating to the general co-
partnership transacting business under the name of all its members or of
several of them or of one only is wisely included in our commercial law for the
protection of the creditors than of the partners themselves.
The one object of the act is manifestly to protect the public against imposition
and fraud, prohibiting persons from concealing their identity by doing business
under an assumed name, making it unlawful to use other than their real names
in transacting business without a public record of who they are.
On the question of whether the fact that the firm name "Teck Seing & Co., Ltd."
does not contain the name of all or any of the partners as prescribed by the Code
of Commerce prevents the creation of a general partnership, Professor Jose A.
Espiritu, as amicus curiæ, states:
…If they intend to do a thing which in law constitutes a partnership,
they are partners, although their purpose was to avoid the creation of
such relation. Here, the intention of the persons making up Teck Seing &
co., Ltd. was to establish a partnership which they erroneously
denominated a limited partnership. If this was their purpose, all
subterfuges resorted to in order to evade liability for possible losses,
while assuming their enjoyment of the advantages to be derived from
the relation, must be disregarded. The partners who have disguised
their identity under a designation distinct from that of any of the
members of the firm should be penalized, and not the creditors who
presumably have dealt with the partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the members of the
general co-partnership liable personally and in solidum with all their property
for the results of the transactions made in the name and for the account of the
partnership. Section 51 of the Insolvency Law, likewise, makes all the property
of the partnership and also all the separate property of each of the partners
liable. In other words, if a firm is insolvent, but one or more partners thereof are
solvent, the creditors may proceed both against the firm and against the solvent
partner or partners, first exhausting the assets of the firm before seizing the
property of the partners.
The court reached the conclusion that the contract of partnership found in the
document therein before quoted established a general partnership or, to be
more exact, a partnership as his word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be
returned to the court of origin for further proceedings pursuant to the motion
presented by the creditors, inconformity with the provisions of the Insolvency
Law.